Cyclopharm Limited

CYC Details

Collaboration with McMasters University to Fight Against COVID-19: Cyclopharm Limited (ASX: CYC) is a radiopharmaceutical company, focused on providing nuclear medicines and other clinical services. On 9 September 2020, the company announced a new research collaboration with McMasters University and other industry leaders, under which, it will conduct a trial to find out the short-term and long-term effects of COVID-19 on lung health. The company will use its unique Technegas^TM technology for lung imaging to get insight into the functional consequence of COVID-19 related lung injury. It is expected that the study will be completed by Q4 2021.

H1FY20 Results Update: During H1FY20, the company generated revenues of $5.8 million, with gross margins of 79.0% of sales. Although the sales figures are in line with the previous guidance, they are impacted by the deferral of sales to France and lower PAS kit sales due to COVID-19 related delays in medical procedures. On an underlying basis, Technegas^TM division’s EBITDA for the half year was a loss of $1.57 million. For the half-year, the company declared an interim dividend of 0.5 cents per share. The company ended H1FY20 in a decent cash position of $8.064 million. During the half-year period, the company made significant progress in attaining approval, from the USFDA, for Cyclopharm to sell Technegas^TM in the USA.

H1FY20 Results (Source: Company Reports)

What to expect: For H2FY20, the company expects that the revenues from distributing third-party products will exceed the revenues achieved in H1FY20. Going forward, the company is focused on developing additional Technegas^TM indications, particularly for Chronic Obstructive Pulmonary Disease (COPD). The company believes that there is a potential to expand revenue from Technegas^TM and profitability over the medium to longer term. The company is confident that it will receive approval from USFDA and expects first commercial sales in 2021. Post market entry in the US, the company believes that Technegas^TM can achieve a 50% share in the US market over 2 to 3 years. Further, the company intends to leverage its deep expertise and experience for the benefit of shareholders.

Key Risks: The company is exposed to the risks associated with the provision of competitors’ nuclear medicine ventilation imaging procedures. Further, the company is exposed to the risks associated with supply chain disruptions, equipment failures, IT system failures, external services failure industrial action or disputes and natural disasters.

Valuation Methodology: Price to Book Multiple Based Relative Valuation (Illustrative)

Price to Book Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last six months, the stock of CYC has provided a return of 40.72% and is currently inclined towards its 52-week high of $1.730. On the technical analysis front, the stock of CYC has a support level of ~$1.309 and a resistance level of ~$1.49. For H1FY20, the company’s debt to equity ratio stood at 0.28x, higher than the industry median of 0.12x. We have valued the stock using Price to Book multiple based illustrative relative valuation method and arrived at a target price with a correction of higher single-digit (in % terms). The company’s future results are highly dependent on the commerciality of its Technegas^TM technology, which is yet to receive approval from USFDA. Therefore, it is too early to decide on the company’s future potential. Hence, considering the aforesaid facts, we suggest investors to avoid the stock at the current market price of $1.380, up by 1.099% on 9 September 2020. 

CYC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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